Do those new, shiny four wheels make you salivate and want to go spend $80,000 every four years? Architects often fall into the trap of convincing themselves that the car they drive equates to the respect that they will receive in their career and in their community. In this article, we will discuss how this “car disease” can be what is holding you back from acquiring real wealth.
Architects are notoriously considered to be “car people.” There’s nothing wrong with buying a nice car, but that $7,000 used Toyota Camry can get you just as far as that $80,000 luxury brand vehicle. That Toyota will also proba
bly last for well over 200,000 with very minor and inexpensive repairs. Can those same statements be made about the Range Rover or the Tesla? It’s probably unlikely.
Driving that used car certainly isn’t as glamorous as pulling up to the valet in the brand new luxury vehicle. That used car probably doesn’t have that alluring new car smell and may even need a new set of brakes in the next 10,000 miles. But the truth is that you can buy a whole lot of brakes for the amount of money you are saving by getting that used car rather than the new car.
-Depreciation. Your new car depreciates approximately 20-30% within the first 365 days of ownership. Each year thereafter (up to year six), the car depreciates 15-18%. By year five, your vehicle will have depreciated by about 60%. Your $7,000 car on the other hand has already been depreciated and you won’t experience these same losses.
-Repairs and Maintenance. With your luxury vehicle, you’re going to take your car to the expensive dealership to get those repairs. You’ll pay a premium and may even have the dealer tell you that it is required under the guise of keeping your car where it where it can be coined as a certified pre-owned vehicle for whenever you decide to sell. Where do you take your $7,000 car? Wherever you want and to a place that is a fraction of the price.
-Insurance. The cost to replace that new car would be much more so the owner will pay a much higher insurance premium. Even if you have a pristine driving record, your insurance cost will be significantly higher than on your used car.
-Opportunity cost. If you buy a $7,000 dollar car instead of that $80,000, you still have $73,000 for your other investments. If you invest that $73,000 into the stock market that has an average rate of return of 10%, this investment would be worth a total of $189,343.20 after ten years of earning. That’s $116,343.20 of interest that didn’t cost any money for expensive oil changes or water pump replacements.
The bottom line is that using your purchasing power on these expensive cars is one of the many behaviors that are keeping the middle class from accruing true wealth. There are much better alternatives for your money that can bring you a great deal closer to achieving wealth at retirement. One final thought: Most households have TWO cars.
